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Where Are the Workers

Hawaii businesses may soon be importing more labor

July, 2005

Sometimes, it takes a village to see the future. The Hilton Hawaiian Village can be a kind of microcosm of Hawaii’s impending work force crisis.

“The cost of benefits, especially medical, for older workers is really high,” says Cherlyn Logan, Hilton’s Hawaii Region human resources vice president. However, the basic demographic imperative facing Logan is the need to import Asian replacements for increasing numbers of retirees, since few young local workers are available or interested in jobs such as housekeeping. “We can always find immigrants, but that brings problems with language and sometimes worker quality,” she says.

Hawaii Department of Education Human Resources Director Faye Ikei says the DOE is stepping up Mainland recruitment for tough-to-fill slots, such as special education, math and science. There are fewer young Hawaii residents studying teaching these days, she says.

These are real-time examples of an emerging new wrinkle for Hawaii employers – a long-term slowdown in young local labor force entrants, and thus the need to import more outside workers, if the economy is to grow as projected.

Worker Shortages: Here to Stay?

As the baby boom generation has aged, Hawaii death rates have risen and birth rates have fallen. The resulting rate of natural increase in population and local labor supply has dropped, as well.

Back in 1970 – when boomers started to have their own babies – Hawaii’s birth rate exceeded its death rate by 12.5 people per 1,000 population (see “Hawaii Births and Deaths” on page 35). That meant a fairly ample supply of new local labor force entrants by 1990, even if some local residents moved away.

However, when 1990 rolled around, the natural increase rate had dropped to 8.3 people per 1,000, and then further dropped to 5.2 by 2000. Demographers at the Hawaii Department of Business, Economic Develop-ment & Tourism (DBEDT) forecast ongoing declines as the population continues to age, meaning increasingly smaller percentages of the population will be working-age adults.

Compounding the situation, smaller percentages of the working-age population are actually choosing to work. In 2002, for the first time in more than 20 years, Hawaii’s labor-force participation rate (the percentage of working-age civilians who are either employed or seeking work) slipped below the national average, which has also been inching downward since 2000.

Absent serious economic reverses, labor supply will be an issue for decades to come, not just during booms. Since the nation as a whole also has fewer future workers than retirees (witness Social Security), Hawaii will have to compete harder to attract Mainland labor or turn more to Asia. This will likely renew debate over desirability of in-migrant-fueled growth.

So What?

Whether all this is a problem depends on: (1) how fast you think the demand for new workers will grow; (2) how confident you are that Hawaii can attract outside labor; and (3) how you view the prospects of in-migration and wage hikes.

Both DBEDT and the state Department of Labor and Industrial Relations (DLIR) have roughly similar expectations of economic growth by 2010. However, DBEDT takes its projections out to the year 2030 and makes estimates of labor force, population and in-migration, as well.

The DBEDT figures suggest a 30-year population growth of about 160,000 people, with two-thirds of that growth due to net in-migration – the difference between total growth and the number that would theoretically result from natural increase if no Hawaii residents moved away.

By contrast, net in-migration accounted for less than 40 percent of population growth from 1990 to 2002 and barely exceeded 50 percent during the boom decade from 1980 to 1990.

Two organizations concerned about these long-term trends are DLIR’s Workforce Development Council and the Society for Human Resources Management (SHRM), the local association of human resource professionals.

Allen Chung, SHRM’s current president, says he is trying to sound an alarm bell in the human resources community: “Nobody’s planning for it. The short-term needs are so pressing that it’s very hard for people to take time to look down the road. It’s a real big public policy issue, where everybody has to work together.”

The Workforce Development Council (WDC), in its 2005 report to Gov. Linda Lingle, warns, “The emerging short-term and potential long-term labor shortages could stifle economic investment and diversification.”

The WDC, traditionally a champion of better training and education for Hawaii workers, is starting to take an even longer view of work force needs and problems because of the demographic pressures, says new executive director Ann Yamamoto.

“We’re increasing our focus on high school internship and mentoring programs. And early childhood education finally got our attention, because research shows its importance to later education and work force performance,” she says. The WDC wants the state to increase support for pre-kindergarten education.

University of Hawaii associate vice president for Academic Affairs Mike Rota is one of the WDC’s key partners in a special project to align economic development and work force preparation goals. He points to Census data suggesting Hawaii imports workers in their 20s, but exports people between the ages of 30 to 64, especially in business, information and computer occupations. “We attract people for a while, because of our climate and lifestyle, but the barriers to keeping them are our low wages and high cost of living, particularly housing,” he says.

SHRM’s Chung, who specializes in placement of mid-level managers, agrees. “People still come here for the sunshine, but not as much as before. There are more competitive opportunities on the Mainland. And people know about our housing costs, which are a really big deal to older workers trying to save for retirement,” he says.

If Hawaii does have a harder time competing for Mainland workers, that tends to leave Asian immigrants, who usually take lower-wage jobs, but are also increasingly visible in technical fields. Foreign immigrants to Hawaii total about 5,000 to 6,000 a year. More than half our recent immigrants have come from the Philippines, with the People’s Republic of China a very distant second.

In the worst of scenarios for Hawaii, growing political instability in the Philippines and tensions over Taiwan could restrict those labor pipelines. “If Asia is blocked, where will we get all our health care workers? All those brains will stay home,” says Yamamoto, with a shudder.

Even if Mainland or Asian labor does flow freely to Hawaii, social questions abound. Will changing ethnic mixes affect Hawaii’s culture? If new jobs are increasingly filled by outsiders, what, if anything, can we do about rapid population growth, wage structures and housing costs?

Economists: Things Will Work Out

Hawaii economists interviewed for this article generally feel the situation has to be accepted and will pretty much work itself out, though perhaps not painlessly.

Some question the DBEDT labor-demand numbers. Bank of Hawaii economist Paul Brewbaker notes DBEDT does long-term forecasts to generate working assumptions for planning agencies. However, he says a 25- or 30-year timeline is too long to take seriously in a small place like Hawaii, where conditions can shift quickly.

Both Brewbaker and West Oahu College labor economist Lawrence Boyd say the forecast – mostly driven by projected tourism growth – ignores recent national trends toward greater productivity in the work force. Higher productivity means less labor demand as the economy grows. “The sort of growth DBEDT projects just won’t happen without productivity change,” says Boyd. However, there is little evidence of increasing tourism labor productivity. The ratio of leisure and hospitality jobs to average visitor census has remained flat, at 0.6, from 1990 to 2004.

Some economists say in-migration has been a positive force for Hawaii in the past, because higher wages will automatically occur, and that even high housing costs play a role in assuring an optimal balance of economic and lifestyle conditions.

“It’s healthy to have people coming and going,” says State Chief Economist Pearl Imada Iboshi. “In a global economy, we ought to embrace flows of goods and people. How can we stop tourism growth? If we don’t build more resorts, they’ll just spread more into residential areas.”

Iboshi says that Hawaii should still attract outside workers. “I don’t see it as a concern. If there’s a demand for labor, wages will go up. People will come,” she says.

Carl Bonham, of the University of Hawaii Economic Research Organiza-tion (UHERO), agrees. “If we have labor shortages, that drives up wages and attracts in-migration of workers. If we have housing shortages, that drives up housing costs and discourages workers from migrating. From an economist’s perspective, wages and housing prices are self-correcting, over fairly long periods of time,” he says.

Brewbaker adds, “Our cost of living is high because of the high demand for living here. When will that not be true? If you could make it untrue, you wouldn’t want the consequence, because everybody from Oklahoma and Iowa would be moving here.”

UHERO labor economist Sang-Hyop Lee takes a slightly different view. “Raising wages alone cannot solve all the problems. The approach should be to try to remove some of the barriers – low public school quality, expensive housing, limited job choices – and also provide other ways to attract people,” he says. “For example, better job security is the best substitute for low wages.”

Leroy Laney, of Hawaii Pacific University, is less upbeat than the other economists. He says barriers to in-migration, particularly housing costs, have already hurt economic diversification, and wage hikes could hobble competitiveness of Hawaii’s service industries.

“It’s hard to make an easy case that things will work out painlessly just due to supply and demand,” Laney says. “But as far as a policy prescription, I don’t know what to say. You pretty much have to let the market work. Things like controls on prices of housing or rent controls, they don’t have a very good history.”

So What Can We Do?

None of the economists question DBEDT’s projections of limited local labor supply, and virtually all agree little can be done to control in-migration, housing costs or wages. The best practical course of action, most say, is to improve the quality of the local labor force that we already have or that is in school now.

“That’s where the Workforce Development Council is right on the money,” says Boyd. “They’re talking about maximizing the competitiveness and the productivity of Hawaii workers.”

In addition to early childhood and high school mentoring efforts, the WDC is recommending actions such as:

o Increasing adult education programs, including issuing “Work Readiness Certificates” to assure employers basic skills, such as work habits, literacy and customer service, are in place.

o Developing a Web-based resource system for lifelong learning and career planning.

o Getting the DOE to deliver a program of economic education that includes financial literacy and entrepreneurial readiness.

The WDC’s biggest recent effort has been to partner with UH, DOE Adult Education and various other agencies in an effort funded by the National Governors Association. The Pathways to Advancement project, which is chaired by UH’s Rota, aims to make sure that various post-high-school public education and training systems work together to address work force and economic goals.

“The big idea is to get more Hawaii workers back into the education pipeline for lifelong career training and retraining,” says Yamamoto. “We want to work with employers to make sure we know their needs and then get community colleges or whoever’s right to respond, either in classes or helping with on-site training.”

The Pathways project has been at work since 2003. A report this June is expected to include detailed recommendations on subjects, such as needs-based financial aid, childcare for adult students and easier lifelong access to courses through distance learning.

Such efforts won’t immediately expand local labor supply, but they should make Hawaii-born workers more competitive with the possible growing numbers of in-migrants.

Even if the economy is constrained by slow labor-force growth, says UHERO’s Bonham, “The winners will be those workers who have the greatest ability to increase their productivity. That is, the most highly educated, highly skilled workers.”

LABOR LIMITS
AND CHALLENGES

• As of January, Hawaii’s 3 percent unemployment rate was the nation’s lowest.

• Consultants for the Workforce Development Council analyzed 2000 Census data and found the two Hawaii occupational groups with the highest proportions of workers near retirement age were:

• They also found that, unadjusted for cost of living, Hawaii job earnings in 2000 roughly equaled national averages for people with less than college educations, however Hawaii workers with a B.A. or higher generally earned less than they could on the Mainland.

• Compared to national averages, Hawaii incomes have generally been falling since 1970, while housing costs remain high.